A biofuel producer has opted to grow its business by diversifying --selling foods and pharmaceuticals -- until large-scale biodiesel production becomes more commercially feasible.

There is a lot of hubbub in the renewal energy industry around algae's potential as fuel source. Both private companies and government researchers have invested in using algae as a sustainable source of biodiesel.

California based Aurora Algae spent years developing pond systems that would produce optimal growing conditions for a special breed of pale green algae in hopes that it could cash in on the craze, but ultimately found that the algae could yield opportunities in higher value markets.

Last month, it changed its name from Aurora Biofuels to Aurora Algae. It intends to use algae to produce high-concentration Omega-3 fatty acids for use in pharmaceutical and health supplement products, use algae protein extracts as a food supplement, and to sell its remaining biomass as fish meal.

"We can be profitable now," said recently installed CEO Greg Bafalis. Bafalis joins Aurora Algae from Green Earth Fuels, where he oversaw the construction of a 90 million gallon biodiesel facility.

The company intends to expand its business by leverage algae as a commodity like soy to expand its business to enter the biofuel market within the next five to ten years, Bafalis explained. "Having those higher value products gives us the margins we need to go out where the costs and yields are in this industries now, and then build mass facilities and get costs down."

Aurora opened a new facility in Perth, Australia earlier this month that he said would prove that its processes work at commercial scale before a second, larger facility is constructed in 2012.

It will take 20,000 acres of algae ponds to service the Omega-3 industry, Bafalis said. "We would need 43 million acres to service the diesel market."